Cordray Gets Started, Schapiro’s Regret, BOE: Compliance

By Carla Main -
Jan 6, 2012

The U.S. Consumer Financial
Protection Bureau will begin supervision of mortgage servicers,
payday lenders and student-loan companies in an immediate
expansion of its authority under the Dodd-Frank Act, agency
Director Richard Cordray said in a Washington speech.

The agency will begin dealing face-to-face with nonbank
firms “that often compete with banks but have largely escaped
meaningful federal oversight,” Cordray said yesterday at the
Brookings Institution in Washington during his first speech
since President Barack Obama used a recess appointment to give
him the bureau’s top job.

Obama plans to meet with the bureau’s staff and deliver
remarks at the agency’s Washington office today.

Cordray said yesterday in a statement on the bureau’s
website that supervising the firms is “an important step
forward” for protecting consumers’’ and having a more
transparent market.

Dodd-Frank, the financial-regulation overhaul that created
the consumer bureau, authorizes the bureau to begin immediate
supervision of mortgage originators and servicers, private
student lenders and payday loan firms once a director was in
place, according to the statement. The agency can now supervise
these firms “regardless of size,” according to the statement.

Cordray, who ran the bureau’s enforcement unit before being
named director, said the agency has taken over “a number of”
investigations from other federal regulators that ceded consumer
protection roles on July 21 and has also started its own
investigations.

Unlike the historically patchwork oversight of consumer
finance, the bureau centralizes the federal government’s
authority and in some cases extends it. Consumers may benefit
from its reach whenever they take out a payday loan, negotiate a
mortgage rate, borrow money for school or pay a credit card fee.
For those who think they’ve been wronged, there will be a
complaint system to help them fight back.

The bureau was created under the Dodd-Frank Act in response
to complaints that existing regulators didn’t do enough to
protect consumers before the 2008 credit crisis. The rules
overhaul shifted consumer protection from regulators responsible
for banks’ financial stability, removing a potential source of
conflict.

The consumer bureau was envisioned as a bulwark against the
kind of credit bubble that inflated from 1999 to 2007, when
household debt tripled to more than $12 trillion, according to
the agency. Elizabeth Warren, the Harvard Law School professor
credited by Obama with conceiving the bureau, viewed it as a
“cop on the beat” to protect Americans against unscrupulous
lenders by --among other things -- eliminating jargon-filled
loan documents in favor of plain-English paperwork.

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Compliance Policy

SEC’s Schapiro Says She Regrets Loss in Investor-Access Battle

U.S. Securities and Exchange Commission Chairman Mary
Schapiro said her chief regret in three years running the agency
was the failure to beat a court challenge of a rule letting
shareholders put their own board candidates on corporate
ballots.

Schapiro made the remarks yesterday in an interview with
former SEC Chairman Arthur Levitt to air on Bloomberg Radio
today. She said she would have liked to find a way to structure
the rule and its cost-benefit analysis so as to withstand the
court challenge brought against it. Schapiro still believes the
rule “could be an incredibly important tool for shareholders to
hold boards accountable for the conduct of companies.”

The so-called proxy access rule, which cost the agency $2.5
million to write and defend, was rejected in a July 22 ruling by
the U.S. Court of Appeals in Washington. The court cited an SEC
failure to fully study the rule’s cost to companies -- inspiring
a “redoubling” of agency efforts to study cost-benefit effects
of its new rules, Meredith Cross, chief of the SEC’s Division of
Corporation Finance, said in November.

Schapiro said another major agency effort -- potentially
blending U.S. accounting practices with a unifying system of
International Financial Reporting Standards -- will be decided
“in the next few months.”

The agency chairman said she is “not thinking that far
ahead” to consider whether she would stay on in the event
President Barack Obama were re-elected and asked her to continue
serving as chairman.

Levitt, who ran the SEC from 1993 to 2001, is a member of
the board of Bloomberg LP, the parent of Bloomberg News.

BOE Says U.K. Lenders Expect to Tighten Criteria on Loans

U.K. banks (F3BANK) expect to toughen the criteria on loans to
companies and households in the first quarter because of strains
in wholesale funding markets, which may impede investment and
economic growth.

“Lenders expected a tightening of credit-scoring criteria
for granting” mortgages and a “tightening of covenants on
loans to large and medium-sized companies,” the Bank of England
said in its fourth-quarter Credit Conditions Survey published in
London yesterday. “Developments in the euro area and their
impact on banks’ funding conditions would be a key determinant
of credit availability over the coming quarter.”

Data from the central bank Jan. 4 showed mortgage approvals (UKMSVTVX)
were little changed in November, underlining the fragility of
the housing market. The Bank of England said in December that
risks to U.K. financial stability from the euro-area sovereign
debt crisis have increased and “stronger action” is needed to
make banks more resilient to potential shocks so that they can
continue to lend.

PwC’s “acts of misconduct merit a severe reprimand,” the
Accountancy & Actuarial Discipline Board said in a judgment
released today. PwC failed to notice that J.P. Morgan Securities
Ltd. hadn’t properly segregated an average of $8.6 billion of
client funds from the firm’s accounts in reports to the U.K.’s
Financial Services Authority for the seven years through 2008.

JPMorgan discovered the error in 2009 and reported it to
PwC and the FSA, which fined the bank a record 33.3 million
pounds in 2010. The U.K. financial regulator has focused on
client-money segregation after the winding up of Lehman Brothers
Holdings Inc.’s former European unit was slowed by years of
litigation among creditors fighting over the issue.

“We regret that one aspect of our work on the private
client money report to the FSA fell beneath our usual high
standards,” PwC said in an e-mailed statement. “When the issue
was identified, and before any complaint had arisen, we took
action to ensure that staff received additional training in the
client monies area.”

The AADB, the U.K.’s audit regulator, sought a record fine
against PwC to top the 1.2 million-pound sanction against
Coopers & Lybrand LLP in 1999. The tribunal also ordered that
PwC pay costs to the AADB totaling 83,902 pounds.

The firm earned a reduction in the fine, which would have
been 2 million pounds, for cooperating.

SNB’s Hildebrand Won’t Resign as He Turns Fire on Opponents

Philipp Hildebrand said he’ll stay at the helm of the Swiss
National Bank (SNBN) and expressed regret that he didn’t curb his
wife’s currency trading as he rounded on political opponents for
trying to undermine his position.

Hildebrand, 48, said he acted appropriately in his role,
speaking publicly for the first time about a currency
transaction that led to calls for his resignation. He made the
remarks at a briefing in Zurich yesterday.

Hildebrand also said the Zurich-based central bank will
look into ways of improving transparency and regulations on
personal financial ethics. He said he realized that people have
“questions” and that he shouldn’t have let his wife make the
dollar purchase.

Pressure on the SNB head to step down increased after local
media reported he used insider knowledge to his advantage. While
the central bank agreed to publish its rulebook Jan. 4 and an
independent probe cleared him of wrongdoing, the purchase of
$504,000 by his wife in August, three weeks before the SNB
imposed a franc cap, was seen as “sensitive” by investigators.
An employee at private bank Bank Sarasin (BSAN) helped leak the
transactions to Hildebrand’s political opponents.

He said his spouse, Kashya, made the dollar transaction
without his knowledge. Hildebrand informed the SNB on the
following day and later gave the resulting profit to charity.

A report commissioned by the SNB Bank Council, the central
bank’s supervisory board, last month said that there was “no
evidence of misuse of privileged information.” Under SNB
compliance rules, board members are forced to maintain currency
positions for at least six months. The government reiterated
yesterday that it had “confidence” in Hildebrand and said it
had no reason to doubt the findings of the probe.

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J&J Said to Agree to $1 Billion Accord in Risperdal Sales Probe

Johnson & Johnson (JNJ) will pay more than $1 billion to the U.S.
and most states to resolve a civil investigation into marketing
of the antipsychotic Risperdal, according to people familiar
with the matter.

J&J, the world’s largest health products company, reached
an accord last week with the U.S. attorney in Philadelphia,
according to the people, who weren’t authorized to speak about
the matter. It doesn’t resolve negotiations over a possible
criminal plea, they said.

The U.S. government has been investigating Risperdal sales
practices since 2004, including allegations the company marketed
the drug for unapproved uses, J&J has said in Securities and
Exchange Commission filings. The company said it has been in
negotiations with the U.S. to settle this investigation.

J&J, based in New Brunswick, New Jersey, disclosed in
August that it reached an agreement to settle a misdemeanor
criminal charge related to Risperdal marketing. The company is
in negotiations to pay about $400 million more to settle this
portion of the investigation, one of the people said.

“We’re not going to comment on rumor or speculation,”
Teresa Mueller, a J&J spokeswoman, said in a phone interview.

Company officials said in an SEC filing in May that they
had reserved funds to resolve the government’s claims over
Risperdal marketing. The company didn’t say how much had been
set aside. The drugmaker said in an August filing it added an
unspecified amount to the reserve to cover criminal penalties.

When the final settlement will be announced isn’t clear. A
majority of U.S. states will join the settlement, the people
said.

The SESC is seeking fund balances, transaction records and
other information, according to the Nikkei newspaper, citing
people familiar with the requests.

U.K. Finance Regulator Meets With Bank Executives on Bonus Plans

Officials at the U.K.’s Financial Services Authority are
holding meetings with senior executives at banks to discuss
compliance with rules on pay.

Liam Parker, an FSA spokesman, said in a telephone
interview that the Financial Policy Committee is “vigorously
engaging” with the “major U.K. banks” to ensure compliance
with committee recommendations on retaining capital by reducing
distributions such as bonuses.

The watchdog will discuss matters including the effect of
pay packages on banks’ level of capital reserves as well as
“the ratio between fixed and variable remuneration” with
senior executives and members of lenders’ compensation
committees, Andrew Bailey, head of U.K. banking supervision,
said in a letter to banks’ chief executives last year.

The FSA introduced stricter bonus guidelines in 2010,
implementing European Union rules, and must approve pay plans
before they are announced to staff.

Courts

CFTC Asks Court to Dismiss Challenge to Position Limits Rule

The U.S. Commodity Futures Trading Commission asked a
federal appeals court to dismiss a challenge by two Wall Street
groups to its rule that limits commodity speculation, one of the
financial industry’s highest-profile efforts to weaken last
year’s Dodd-Frank law.

The CFTC filed its request Jan. 4 in the U.S. Court of
Appeals in Washington, arguing the appeals court doesn’t have
jurisdiction to consider the lawsuit. The agency said that the
district court must first consider a challenge to the rule.

J.M. Smucker, the Orrville, Ohio-based maker of jams and
other food products, bought Folgers for about $3 billion in June
2008. Prosecutors told U.S. District Judge Jed Rakoff in
Manhattan yesterday at a pre-trial hearing that the government
may file a superseding indictment against Gupta, also a former
director of Goldman Sachs Group Inc. (GS), by the end of the month.

Also yesterday, Rakoff said Gupta should “not be too
optimistic” about his request to bar Rajaratnam’s wiretapped
calls as evidence in the case.

Gupta’s lawyer, Gary Naftalis, asked Rakoff to direct
prosecutors to provide more specific details about their case
against his client. Naftalis described as “vague” the
indictment filed in October which alleges Gupta passed tips
about Cincinnati-based Procter & Gamble, Goldman Sachs, and
other “companies.”

“In June 2008, Procter & Gamble sold its Folgers Coffee
business to J.M. Smucker,” Assistant U.S. Attorney Richard
Tarlowe told Rakoff in court yesterday. “The allegation is that
Mr. Gupta disclosed the information about that before it was
public to Mr. Rajaratnam.”

The U.S. will probably argue at the April 9 trial that
Rajaratnam told another person that Gupta gave him illegal tips,
defense lawyers said in a Jan. 3 filing. Gupta contends that
prosecutors are trying to make Rajaratnam a government witness
by using statements he made about his alleged sources of inside
information. Defense lawyers note that prosecutors at the same
time have challenged Rajaratnam’s veracity, and even called the
Galleon Group LLC co-founder a liar.

Gupta, 63, who also led McKinsey & Co., was indicted in
October on accusations that he passed inside information to
Rajaratnam.

The cases are U.S. v. Gupta, 11-cr-00907, and SEC v. Gupta,
11-cv-07566, U.S. District Court for the Southern District of
New York (Manhattan).

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Comings and Goings

FCC’s Genachowski Appoints Zachary Katz Chief of Staff

Zachary Katz will become chief of staff at the Federal
Communications Commission, the agency said in an e-mailed
statement. He was appointed to the position by FCC Chairman
Julius Genachowski. Katz will succeed Eddie Lazarus, who will
leave the position at the end of January, the agency said in the
statement.

Katz joined the FCC in 2009. He previously worked in the
White House Counsel’s office. Since joining the FCC, Katz has
led projects such as Connect America Fund.

Administrative Law Judge Robert G. Mahony Retires, SEC Says

Robert G. Mahony, an administrative law judge at the U.S.
Securities and Exchange Commission, has retired, the agency said
in a statement yesterday.

Mahony worked for the federal government for 46 years, 14
of which were spent at the SEC. While at the agency, Mahony
presided over administrative proceedings brought by the SEC’s
Division of Enforcement and issued decisions in the matters, the
agency said in the statement. His proceedings covered a range of
alleged securities law violations, including insider trading,
the sale of unregistered securities, and disciplinary actions
involving corporate officers and directors, and brokers,
according to the statement.